The steady selling of Turkish assets is fast becoming a stampede. Fearing for the country’s economic, political, and security stability, investors are quitting the country in droves.
As a result, the Turkish lira has been touching new all-time lows against the dollar in trading today (Sept. 7)—with no respite in sight:
Amid the general decline in emerging-market assets, Turkey stands out for the severity of its rout. Analysts have long considered Turkey the most vulnerable of the largest developing economies to capital outflows as investors rethink their appetite towards risk given the economic slowdown in China and prospect of interest-rate hikes in the US.
But what’s really spooked investors in the country recently are concerns closer to home, namely a bout of political instability and separatist violence that puts pressure on a country already facing a tough fiscal situation.
Yesterday, Kurdish separatists killed more than a dozen Turkish soldiers in the deadliest attack on the country’s military in years. President Recep Tayyip Erdogan responded today with airstrikes on targets linked to the outlawed Kurdistan Workers’ Party.
The violence comes amid political uncertainty ahead of snap elections on Nov. 1, described by Erdogan as a “re-run” of the June poll in which his party lost is majority in parliament. The president’s muscular response to security threats—against Kurdish separatists at home and ISIL militants abroad—is bolstering his party’s nationalist bonafides ahead of the vote. The government has also recently taken to detaining journalists covering the unrest in the Kurdish-majority southeast.